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This testimony discusses the nation's long-term fiscal outlook and the challenge it poses for the budget and oversight processes. First, GAO provides results of its most recent simulations of the long-term fiscal outlook, updating a model GAO initially developed in 1992. GAO also discusses some ideas for increasing transparency of the long-term costs of government commitments and the range of fiscal exposures. Finally, GAO discusses a forthcoming report that it believes will help the Congress in dealing with a range of performance and accountability issues. This report will provide policy makers with a comprehensive compendium of those areas throughout government that could be considered ripe for reexamination and review based on GAO's past work and institutional knowledge.

The nation's fiscal policy is on an unsustainable course, and its long-term fiscal gap grew much larger in fiscal year 2004. Long-term budget simulations by GAO, the Congressional Budget Office, and others show that, over the long term the nation faces a large and growing structural deficit due primarily to known demographic trends and rising health care costs. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, the nation's economy, its standard of living, and ultimately its national security. The long-term outlook challenges the budget process to provide more transparency about the specific exposures that will encumber the nation's fiscal future. GAO feels that elected representatives should have more explicit information on the present value dollar costs of major spending and tax bills--before they vote on them. All simulations indicate that the problem is too big to be solved by economic growth alone or by making modest changes to existing spending and tax policies. A fundamental reexamination of major spending and tax policies and priorities will be important to recapture fiscal flexibility and update the nation's programs and priorities to respond to emerging social, economic, and security changes.